July proved to be a stellar month for stock markets, with global equities up just over 10% in euro terms. In the US, interest rates rose another 0.75% at the July meeting of the Federal Reserve following on from a 0.75% hike in June. Despite this, the market now perceives the Fed to be slightly less hawkish as the US economic backdrop turns less optimistic. The US housing market is noticeably weaker as the effects of higher rates take hold.
Global economic activity continues to accelerate, helped by the rebound in Asia. However, in Europe and North America economic growth is expected to slow as suggested by leading indicators (such as PMIs) and lagging indicators (such as GDP growth). Within the eurozone, the ECB raised rates to move out of negative territory for the first time in a decade and announced a new ‘Transmission Protection Instrument’ to contain sovereign bond spread widening. Despite the rate rise news, eurozone sovereign bonds enjoyed a positive month. In politics, Mario Draghi resigned with general elections to follow in September.
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